2019 annual forecast

South Asia

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders. The Himalayan Mountains form the northern border of South Asia, whose two main rivers, the Indus and the Ganges, support the region’s great population centers. India is the region’s dominant country, home to the world’s fastest growing economy. But its rivalry with neighboring Pakistan, a fellow nuclear power and growing consumer market, has made South Asia one of the world’s most dangerous nuclear flashpoints. The region is also a testament to how militancy and militarism can undermine the regional integration needed to unleash higher economic growth.

7 MINS READNov 28, 2018 | 15:14 GMT
Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.


Key Trends for 2019

India and the U.S.-Russia Balance

India will cautiously advance its defense partnership with the United States in spite of disputes over trade and sanctions. After all, their shared rivalry with China makes the U.S.-Indian partnership mutually beneficial. At the same time, to maximize its strategic autonomy, New Delhi will safeguard India's relations with Russia, which it depends on for arms. To support indigenous production, Prime Minister Narendra Modi will emphasize technology transfers from key U.S. and Russian weapons suppliers. All the while, he will resist U.S. pressure to lower tariffs — especially on dairy products and medical devices – and will seek expanded access for India's services sector ahead of the 2019 elections as he tries to protect jobs under his "Make in India" campaign. Read more on India's cautious approach to tightening U.S. relations.

A chart showing Indian arms imports

Managing Tensions With China and Pakistan

India and China will maintain their phase of managed tension during 2019. India is the reactive power in the relationship, and Modi's focus on winning re-election means that New Delhi will not provoke Beijing. But his stance doesn't preclude skirmishes or incursions along their disputed border. It does mean that neither country will deliberately escalate tensions to the point of a Doklam-style standoff

As long as the United States remains China's primary focus in 2019, Beijing will seek to maintain stable relations with the powers on its periphery, including India.

Once Indian elections conclude in May — and given that Pakistani elections took place in 2018 — the two rivals will have the space to restart negotiations stalled since 2016, even if the talks don't lead to a resolution of their dispute over Kashmir. Pakistan, in particular, wants to bring tensions to a more manageable level as its military focuses on securing the volatile border with Afghanistan and as Prime Minister Imran Khan's government explores the possibility of trade talks with New Delhi. For more on the what Indian elections will bring, read our latest assessment.

Contesting the Indian Ocean

Even as India manages tensions with China on the tactical level, its strategic competition with Beijing for basing rights, infrastructure projects and defense partnerships will play out across the Indian Ocean. To bolster its position in the Indo-Pacific, India will move to strengthen relations not only with the United States but also with Japan and Australia using a bilateral, more than a multilateral approach, with emphasis on building its relationship with Japan, especially. New governments in Bhutan, the Maldives and Bangladesh, all of which have signed on to China's Belt and Road Initiative will lead India to renew its engagement with them. This analysis explains more about India's strategic approach to China's growing presence.

A map showing India's periphery

The Spotlight on India's Elections

The Indian political opposition will focus on uniting in an effort to dislodge Modi and his Bharatiya Janata Party (BJP) from power. Although Modi will have the advantage going into the state and parliamentary elections, the BJP will fail to win as big a majority as it did in 2014 as frustration rises among voters over economic and job-creation problems. Ahead of the elections, the party will emphasize Hindu nationalist issues. Meanwhile, a strengthening dollar means the rupee will remain weak, and the persistent threat of inflation will compel the Reserve Bank of India to maintain a monetary tightening policy, which will be a key point of contention between the government and the central bank

If the Indian government attempts limited labor reforms after elections, the opposition will do its best to thwart them — meaning major legislation on the subject will fail to materialize.

Finally, India will delay concluding a deal on the Regional Comprehensive Economic Partnership (RCEP) until after the elections. India has a trade deficit with 10 of the 16 RCEP countries — China accounts for the biggest share — so New Delhi's acceptance of any deal will hinge on earning concessions that can protect its industry from a surge of Chinese imports that would threaten local jobs. India will also seek expanded market access for its information technology services sector to address the trade imbalance, a key part of its offensive trade strategy. Learn more about the ruling party's strategy as elections approach.

A chart showing India's interest rates and inflation

The U.S. Status Quo in Afghanistan

Despite limited success thus far, the United States will maintain its current strategy in Afghanistan, deploying a mix of military and diplomatic force to pressure the Taliban on the battlefield while urging Pakistan to bring the Taliban to negotiations. The U.S. pressure will continue to drive Pakistan toward a stronger security partnership with Russia and Iran as part of its regional foreign policy pivot. And Islamabad, Moscow and Tehran will use the threat of the Islamic State to strengthen their security partnership

The situation in Afghanistan is unlikely to change drastically in the year ahead.

As the United States runs out of medium-pressure tactics (such as cutting off funding, revoking Pakistani officer training and curbing defense sales), it is more likely to impose harsher measures such as revoking Pakistan's non-NATO major ally status. The Taliban will express more serious interest in negotiations, but talks will only begin if NATO commits to a drawdown, which is unlikely next year given concerns that the Afghan army isn't strong enough to handle security on its own. Read more on the growing relationship between Pakistan and Russia.

Pakistan's Trade Deficit and Slowing Growth

As the prime minister implements austerity measures to strengthen Pakistan's economy, growth will slow and unemployment will rise, compelling him to focus on anti-corruption measures to demonstrate his administration's progress. He will also push China to emphasize agriculture projects in the China-Pakistan Economic Corridor while pushing for jobs creation and inviting third-party countries to invest in the country. 

Pakistani Prime Minister Imran Khan's focus on economic growth won't affect his deference toward the country's military.

But a strong dollar means that dollar-denominated purchases will maintain pressure on the trade deficit. On the political front, Khan will avoid tampering with the army, meaning its hold over foreign policy will endure. If the prime minister tries to assert his authority over the military, the army will either engineer parliamentary defections causing his coalition to collapse, or corruption cases will suddenly arise against members of his administration. Take a more in-depth look at Khan's balancing act in office in our latest assessment.

Related Forecasts

These Stratfor analyses provide additional insights for the year ahead

Key Dates to Watch

  • December: India and China hold military drills.
  • December: The Indian states of Rajasthan, Mizoram, Madhya Pradesh, Odisha, Chhattisgarh and Kashmir conduct elections.
  • Dec. 30: Bangladesh conducts national elections.
  • January: Deadline for International Monetary Fund bailout talks with Pakistan
  • January: Sri Lanka to hold snap elections.
  • April 1: Start of India's fiscal year.
  • April 20: Afghan scheduled to hold presidential elections.
  • April-May: Indian parliamentary elections and state elections in Andhra Pradesh, Odisha, Sikkim and Arunachal Pradesh are held.
  • July 1: Start of Pakistan's fiscal year.
  • Summer: India, Japan and the United States participate in Malabar naval exercises.
  • September: Deadline for Pakistan to complete Financial Action Task Force plan to be removed from anti-terrorism "gray list."
  • December: Preparations begin for Sri Lanka's 2020 presidential elections.

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